How to Get out of Debt When you already have Healthy Financial Habits

There is a lot of great advice out there about how to get out of debt. Unfortunately, the saturation of this advice means that a lot of it is basic common sense. That’s not necessarily a bad thing, as when you break it down, there really are two main strategies to paying off debt:

  • Reduce Expenses
  • Increase Income

With the average student loan debt in America being $33,000, a lot of people in debt aren’t necessarily there because of bad spending habits. Sure, most college students could eat out less and spend more wisely. But a lot of today’s debt is coming from being told that it’s worth investing in college, that student loan debt is “good debt” and that their degree will help them get the job needed to pay off that debt.

Whether or not those statements are true doesn’t matter. The truth is that young people entering college don’t have to have unhealthy financial habits in order to get in a lot of debt. Student loans are relatively easy to obtain, and oftentimes, students borrow more than what they strictly need for tuition because they’re told that “living expenses” can be covered by student loans. They also aren’t motivated to make interest payments during school because it’s not required.

These aren’t great financial decisions, but they are understandable for young people who have never been in debt before, and who don’t know the reality of how much interest can add up (even if they know the concept of compound interest- reality doesn’t hit until those bills come in).

So when those bills do come in and graduates have to spend half of their entry level salary to meet minimum payments on their loans, finances can be overwhelming. Most debt reduction advice focuses on reducing extraneous expenses- magazine subscriptions, gym memberships, eating out, etc. But young people today might find that their set bills don’t allow them to spend money on these things in the first place. The amount of interest you pay is drastic if you make minimum payments, but If your payments come to more than 30% of your income, you might not be able to afford to pay more and still meet rent, utilities, and other living expenses.

A lot of the debt relief advice out there just isn’t relevant to people in this situation. They already don’t put unnecessary expenses on their credit cards. They already eat mostly at home, and have strategized to cut their grocery costs. They don’t necessarily spend money each month on makeup subscriptions or cable tv. So here are the two main steps to getting out of debt when you already live frugally.

Reduce your debt

This is the unpleasant step. Reducing your debt means calling your lenders and asking about your options. Can you get a lower interest rate? Are there special programs that you might qualify for to decrease you r interest or overall debt? There might not be, but you never know unless you ask.

If you have several private loans, you might be able to consolidate them and get a lower interest rate. This also means that you’d be making fewer payments each month, since consolidation is combining multiple loans into one. One of your current lenders might be willing to give you a competitive interest rate in order to take on all of your business. Tell them you’re shopping around and see if you can knock a couple percentages off that interest.

There are also many outside organizations that offer loan consolidation. Compare debt consolidation services and see if there is a company that will work for you. Make sure you read all the fine print, and don’t send out any confidential personal information until you are sure you’re working with a trustworthy institution. There are a lot of financial scams out there, and a lot of businesses that just want your information to sell to the highest bidder.

Loan consolidation can be a lot of paperwork, and it can be frustrating. It also isn’t the best option for everyone. But if you can obtain a lower interest rate at monthly payments you can afford, it might worth it for you.

Budget Your Time

After getting your interest rates as low as you can, the best way to pay off your loans quickly is to increase your income and dedicate as much of that income as you can to your loan payments. Of course, there are a million articles out there about forms of alternate income, from selling your possessions to walking dogs, to freelancing online. Look at any of these options and you will probably find a success story of someone who makes more through that tactic than you do with your day job.

The problem with alternate income is that it’s alternate. It’s something you have to fit in on top of your day job and any social responsibilities you have. Paying down your debt is important, but you don’t want to spend ten years of your life focusing only on making money, and not having time for other important things.

This is why it’s important to budget your time. Make a calendar and include all your responsibilities. Include your mealtimes, and be realistic about how much time it takes you to cook and eat. Overestimate. If you have friends and family that you want to spend time with regularly, write that time in as accurately as you can.

Next, schedule time to work on alternate income. This can be spent determining what methods you’ll use as well as actually implementing them. Always overestimate how much time it might take you to freelance an article, website, or photos. If you’re housesitting, dogsitting, babysitting, or doing yard work, take into account transportation time. If you have extra time, you can always do an extra task for more money or take a much deserved break. But if you underestimate, you’ll find yourself scrambling to get things done, and you’ll quickly get burnt out.

Even if your form of alternate income is something that can be done any time of day, like freelancing, or making craigslist posts for all the extra stuff you’re selling, make sure you schedule specific time slots. This will make it more likely you’ll actually complete what you set out to do. If last minute plans come up, make sure you make up the lost time later. Set a weekly hourly goal and make sure you meet it.

If you find yourself having down time that you’d like to use productively, you can always work to even further reduce your costs by making your own household products, or fixing things around the house that you would usually pay a professional for. The internet is a budgeter’s best friend, as there is a tutorial on just about everything.

Whether you are a reformed credit card addict or a college graduate stuck with overwhelming student loans, don’t think that there are no ways to optimize your income once you’ve developed healthy financial habits. There are always more ways to reduce your debt and expenses, and increase your income, as long as you strategize correctly and set realistic expectations.


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